PACK Earnings Review 2Q FY26 / Bartleet Religare Securities - 02nd January 2026 📦 Normalization Phase Post Capacity Expansion; Near-Term Pressures Persist 💰 EPS of LKR 0.10 for 2Q FY26, down 75% YoY, with GP, EBIT and NP margins declining to 20%, 6% and 1% respectively, reflecting elevated depreciation and finance costs following recent capacity expansion. 📊 Topline resilient, margins under pressure: Revenue declined marginally by 1% YoY despite likely volume growth, as intense competition limited pricing upside while cost pressures weighed on profitability. 🏭 High leverage delays operating leverage: Increased borrowings to fund expansion resulted in a sharp rise in finance costs, while higher depreciation continues to suppress near-term earnings, particularly in FY26. 🗞 Neptune Papers remains a drag: Weak recycling economics, low Indian paper prices and subdued local printing activity continue to pressure subsidiary earnings, limiting group-level recovery. 📈 Valuation & recommendation: We expect a gradual, step-by-step earnings normalization over FY27-FY28, with FY26 likely to remain challenging. DCF valuation yields an FY27E TP of LKR 16.00, implying limited upside at current levels. Recommendation: HOLD